Fundamental Analysis Of Torrent Power: The power sector is likely to benefit from India’s economic growth. As the world transitions from fossil fuels to renewable energy, electricity plays an increasingly important role in driving economic growth. As technology advances, the regulatory framework becomes increasingly important.

Most industries rely on electricity, and this is likely to increase as more businesses open. In this article, we will look at the Fundamental Analysis Of Torrent Power including its Financials, Future Plans & More…

Fundamental Analysis Of Torrent Power

Company Overview

Torrent power logo

Torrent Power was established in 2004 and is one of the power companies operating in the Indian power sector. The company is part of the Torrent Group, which also owns a healthcare and power portfolio. Its operations include power generation, transmission, and distribution, as well as the manufacture and supply of power cables.

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The company acquired and successfully rebranded Mahendra Electricals, an ailing power cable company, as ‘Torrent Cables Ltd.’ (now merged with Torrent Power Limited as of April 1, 2014). Torrent’s foray into power was highlighted by the acquisitions of two of India’s oldest utilities, The Surat Electricity Company Ltd and The Ahmedabad Electricity Company Ltd.

Torrent transformed them into top-tier power utilities in terms of operational efficiency and power supply reliability. Its portfolio includes coal, gas, and renewable power plants with a combined generation capacity of 3879 megawatts. 

Every year, the company provides power to over 3.8 million customers in its distribution areas of Ahmedabad, Gandhinagar, Surat, and Dahej SEZ and Dholera SIR (Gujarat), Bhiwandi, Shil, Mumbra, and Kalwa (Maharashtra), Agra (Uttar Pradesh), and the Union Territories of Dadra & Nagar Haveli, Daman, and Diu.

The company has one of the lowest T&D losses in its licence areas. It made history in December 2006 by signing the country’s first distribution franchisee agreement with Maharashtra State Electricity Distribution Company Limited for the Bhiwandi Circle.

Segment Analysis

The company only operates in one segment: generation, transmission, and distribution of power in India. However, the company’s revenue came from power supply, which accounted for 86.63%, and cable product sales, which accounted for the remaining 13.36% of total revenue from operations. 

Industry Analysis

India’s power industry is transitioning from thermal to renewable energy and expanding due to increased business activity. Thermal power plant load is estimated to improve by 63% in FY24, fuelled by strong demand growth along with subdued capacity addition in the sector. 

100% FDI is allowed under the automatic route in the power segment and renewable energy. The power generation industry in India will require a total investment of Rs. 33 lakh crore (US$ 400 billion) and 3.78 million power professionals by 2032 to meet the rising energy demands, as per the National Electricity Plan 2022-32.

Renewable energy remains a key priority for India, with an ambitious goal of replacing 50% of the total installed capacity with non-fossil fuel-based power plants by 2030. 

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Fundamental Analysis Of Torrent Power – Financials

Revenue and Net Profit

Torrent Power revenue from operations stood at Rs. 25,694.12 crore as compared to Rs. 14,257.61 crore in FY22, an increase of 80.21%. Net profits increased by 371.91% in FY23 to Rs. 2,164.67 crore from Rs. 458.70 crore in FY22.

The four-year CAGR for revenue and net profit was 18.23% and 24.40%, respectively. Revenues were stable from FY19 to FY22 but increased dramatically in FY23. Net profits followed a similar trend in FY23 but fluctuated between FY19 and FY22.  

The fluctuation in FY20 and FY22 profits was caused by an impaired cost of Rs. 1,000 crores in FY20 and Rs. 1,300 crores in FY22, both for DGEN power plants, which had an impact on their financials during those years.

In FY23, growth was driven by an increase in the newly acquired licensed distribution business, new renewable business, distribution unit expansion, and the sale of RLNG.

Particulars/ Financial YearRevenue (Cr.)Net Profit (Cr.)
2022-23₹ 25,694.12₹ 2,164.67
2021-22₹ 14,257.61₹ 458.70
2020-21₹ 12,172.66₹ 1,295.87
2019-20₹ 13,640.63₹ 1,178.88
2018-19₹ 13,150.97₹ 903.83
CAGR (4 Years)18.23%24.40%

Profit Margins

The company’s OPM stood at 19% in FY23 as compared to 25% in FY22. NPM was 8.42% in FY23 as compared to 3.21% in FY22. 

The company’s OPMs were consistent from FY19 to FY22, but the margin in FY23 dipped due to an increase in electrical energy costs. NPM has fluctuated over the last five years, averaging 7.55%, and it has a decent margin in FY23.

Particulars/ Financial YearOPM (%)NPM (%)
2022-2319%8.42%
2021-2225%3.21%
2020-2129%10.64%
2019-2026%8.64%
2018-1924%6.87%
Average (5 Years)24.60%7.55%

Return Ratios

In fiscal year 23, the company’s RoE and RoCE were 19.23% and 16.79%, respectively. Over five years, the averages were 11.86% and 13.08%.

The RoE is greater than the RoCE, indicating a higher return to shareholders. Better return on debt and increased interest costs are two factors that can influence a higher RoE. Interest costs increased in FY23, which could be one of the reasons why the RoCE is lower than the RoE.

Particulars/ Financial YearRoE (%)RoCE (%)
2022-2319.23%16.79%
2021-224.56%13.20%
2020-2112.67%12.42%
2019-2012.82%12.91%
2018-1910.02%10.11%
Average (5 Years)11.86%13.08%

Debt Analysis

The Torrent power Debt to Equity ratio in FY23 was 0.95, compared to 0.92 in FY22. The interest coverage ratio was 6.28 times, compared to 6.09 times in FY22.

The D/E ratio in FY23 is close to FY19 levels and has been increasing since FY21. However, the interest coverage ratio has improved and is on the rise from fiscal year 2019 to fiscal year 23. Any company with a coverage ratio greater than three times its earnings is better able to cover its interest expenses and is in a comfortable position.

Particulars/ Financial YearD/EInterest Coverage
2022-230.956.28
2021-220.926.09
2020-210.663
2019-200.852.55
2018-190.992.41
Average (5 Years)0.874.06

Fundamental Analysis Of Torrent PowerKey Metrics

Here are some of the key metrics of Torrent Power

ParticularsAmountParticularsAmount
CMP₹ 982.85Market Cap (Cr.)₹ 47,237
EPS (TTM)₹ 45.29Stock P/E (TTM)21.70
RoE (%)19.23%RoCE (%)16.79%
Price to Book Value4.73Dividend Yield (%)2.65%
Promoter Holding (%)53.57%FII Holdings (%)6.13%
Enterprise Value (Cr.)₹ 35,116.79Net Profit Margin (%)8.42%

Fundamental Analysis Of Torrent Power – Future Plans

  • The company has signed four memorandum of understanding with the Gujarat government for renewables, green hydrogen, and electricity distribution, totaling 47,000 crore in investments in Gujarat.
  • Torrent plans to invest Rs. 27,000 crore in Maharashtra’s pumped storage hydro projects.

Conclusion

As we near the end of the article, we will take a quick look at the company. The company has emerged as a leader in the power industry, and it is poised to expand in tandem with India’s growing dynamics.

Their financial performance in FY23 demonstrated a significant change, and Torrent Power’s ability will be tested based on its consistency in maintaining margins or remaining within certain parameters. The company intends to make investments in renewable energy and expects to improve its margins in the future.

What do you think about the company’s potential? Let us know your views in the comments section below.

Written by Santhosh

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